Trying to stand out in enterprise tech? Create a new software category.

Over 20 years ago, Salesforce created the software-as-a-service market. Now, a legion of fresh entrants are trying to build their own new software categories.

One man with balloons flies above men in hats

A new crop of providers is emerging that wants to create entirely new software categories.

Image: eelnosiva/Getty Images

It was a much different world when Salesforce was trying to establish software-as-a-service as the next frontier in enterprise technology in the early 2000s.

The company made success look easy. It took in just $65 million in outside funding, went public a little more than four years after it launched in 1999 and relied on marketing gimmicks like a fake protest of an Siebel Systems conference to spread the word that web browsers and internet speeds could now handle the demands of enterprise customers.

Two decades later, SaaS is a $158 billion industry with thousands of vendors. Private upstarts are raising single rounds valued in the hundreds of millions, if not billions of dollars per round. The rush of new options means SaaS newcomers must compete on the strength of their products, and not viral marketing campaigns, to convince end customers outside the IT department to adopt their software.

But a new crop of providers is emerging that wants to create entirely new software categories around the maturing needs of cloud converts and innovations in areas like data management — and hopefully become the next Salesforce along the way.

Databricks is a pioneer in creating the data lakehouse architecture. Confluent and Amplitude are early leaders in the emerging real-time analytics market. Celonis claims it's building the "execution management" category. Canva touts the creation of the "visual economy" market. Those companies and others face much different hurdles now than Marc Benioff and his executive team did two decades ago.

"It's a big challenge if you are trying to do something that's genuinely new. A lot of people who are doing category creation, it's not really new. It's just a rebranding," Confluent CEO Jay Kreps told Protocol. "It's a powerful thing when you do it. There's a lot of advantages to companies that are first in a new category. But it's a big hill to climb."

Even a vendor like Snowflake, which was taking an existing concept and moving it to the cloud, found success by touting the product as the launch of a new category.

"It was a big, massive existing market. People understand what data warehouses are all about. Our differentiation is the fact that we were built for the cloud," said marketing chief Denise Persson. The company debated other categories, did "extensive focus groups … and tested all these different concepts with prospects that had never heard about Snowflake" before committing to the "cloud-based data warehouse" branding, she added.

Benefitting from SaaS complexity

When trying to establish nascent software categories, new products are often labeled as "first of their kind," helping to create a sense of intrigue and buzz. As a result, those companies can claim to be the only ones solving an enterprise's most pressing IT problems.

That can become a virtuous cycle, if you're an enterprise tech founder or investor: As more SaaS startups try to tackle newer market opportunities, others emerge that help solve problems created by those applications.

"There's more systems, there's more SaaS layers, there's more databases," said Kreps. "What we benefit from the most is the explosion of complexity in the landscape."

Trying to pioneer a new market has its downsides. Thanks to advantages like easier access to financing and an influx in cloud-based programs that can help reduce operational costs, it's easier than ever to launch a business these days, founders say, which is forcing the buzzy upstarts to scale very quickly. That wasn't the case with Salesforce, which was largely just trying to upstage PeopleSoft — albeit a difficult task in its own right.

But that pressure comes from more than one direction. Many are also challenging the dominance of cloud providers like AWS and Microsoft, which can dangle huge compensation packages in front of new recruits and invest billions in research and development.

Those more-intense capital needs are one reason why enterprise software fundraising has gotten so out of control: Databricks has raised $3.5 billion, Amplitude raised around $337 million before it went public in September, Confluent raised $456 million before an IPO in June, Celonis has taken in $1.3 billion and Canva has raised $587 million.

"Lots of other vendors are going to jump in and claim to be the real lakehouse. It's already happening, so execution will matter a lot," said Databricks CEO Ali Ghodsi. "Creating a new category is going to take a lot of investment, especially on the R&D side. Getting that talent is expensive. When we're hiring engineers, the competition is Google. And we're not talking about junior engineers … it's top level," he added.

However, launching a company now — or in the past few years, at least — does give founders some advantages over legacy providers and big cloud companies. For example, companies like Adobe still have to deal with a customer base split between those who store their data fully on-premises, those who have fully embraced the cloud and those who have a hybrid structure.

That's a challenge that newer vendors like design software provider Figma aren't grappling with at the same level.

"We are standing on the shoulders of giants" like Adobe, said Figma CEO Dylan Field. But "having to build up from an offline world is really hard. We're in that unique advantage where we can build everything from a cloud environment."

Growth at all costs

Overall, it's a much different landscape for software startups than it was in the early 2000s, which is allowing those aspiring vendors to pursue a much different — and much quicker — growth trajectory, according to industry experts.

Some startups "are growing faster than any other prior business has," LSVP partner Arsham Memarzadeh told Protocol. "It's no longer the old 'triple-triple-double-double-double' from a revenue standpoint, but 6x this year, 5x next year."

One only has to look to industry leaders like Atlassian to understand just how noteworthy this shift has been. The company began in 2002, as Silicon Valley was still reeling from the burst of the dot-com bubble. Throw in the fact that Atlassian is based in Australia and fundraising was a more difficult endeavor at the time compared to the environment today.

"To say that it's a different situation [now] than when Atlassian started would be the understatement of all understatements," said Chief Revenue Officer Cameron Deatsch, who joined the company in 2012. "The amount of capital, time and investment required to actually just build a new solution that is [enterprise]-ready and then deliver that effectively to customers is way less than it was 20 years ago."

As a result, its growth trajectory was smaller and not focused on "triple-digit growth in the first year," according to Deatsch. And instead of focusing on the CIO — who, at that time, controlled most tech spending — Atlassian targeted developers and made it easy for them to independently sign up for the product. But even that was more difficult, as there weren't as many ways to market to that audience.

Now, other startups are doubling down on that strategy as more IT departments enable line of business leaders to purchase the software that works best for their teams.

For example, Amplitude is focusing its sales efforts on the chief product officer. But the company has tackled just 1% of the universe of CPOs, per CEO Spenser Skates, and increasing that number requires a major change in mindset among the user base.

"We're the first company to go out that's really dedicated to serving that person," Skates said. But "it's not a given that they are going to use data to run product teams. That's a shift that's just been happening."

As more startups take advantage of an explosion of SaaS and look to piece together different functions or fill in gaps they see in the tech stack, expect to hear even more founders claim to be building a new category.

However, the challenge will increasingly become convincing end users they offer a service that solves something unique compared to their already sprawling IT suite.

"You have to create more education in the market, you have to put more resources behind marketing, because it's not just displacing an existing vendor," said Memarzadeh.

Clarification: This story was updated to clarify the nature of Snowflake's early product strategy.


Judge Zia Faruqui is trying to teach you crypto, one ‘SNL’ reference at a time

His decisions on major cryptocurrency cases have quoted "The Big Lebowski," "SNL," and "Dr. Strangelove." That’s because he wants you — yes, you — to read them.

The ways Zia Faruqui (right) has weighed on cases that have come before him can give lawyers clues as to what legal frameworks will pass muster.

Photo: Carolyn Van Houten/The Washington Post via Getty Images

“Cryptocurrency and related software analytics tools are ‘The wave of the future, Dude. One hundred percent electronic.’”

That’s not a quote from "The Big Lebowski" — at least, not directly. It’s a quote from a Washington, D.C., district court memorandum opinion on the role cryptocurrency analytics tools can play in government investigations. The author is Magistrate Judge Zia Faruqui.

Keep ReadingShow less
Veronica Irwin

Veronica Irwin (@vronirwin) is a San Francisco-based reporter at Protocol covering fintech. Previously she was at the San Francisco Examiner, covering tech from a hyper-local angle. Before that, her byline was featured in SF Weekly, The Nation, Techworker, Ms. Magazine and The Frisc.

The financial technology transformation is driving competition, creating consumer choice, and shaping the future of finance. Hear from seven fintech leaders who are reshaping the future of finance, and join the inaugural Financial Technology Association Fintech Summit to learn more.

Keep ReadingShow less
The Financial Technology Association (FTA) represents industry leaders shaping the future of finance. We champion the power of technology-centered financial services and advocate for the modernization of financial regulation to support inclusion and responsible innovation.

AWS CEO: The cloud isn’t just about technology

As AWS preps for its annual re:Invent conference, Adam Selipsky talks product strategy, support for hybrid environments, and the value of the cloud in uncertain economic times.

Photo: Noah Berger/Getty Images for Amazon Web Services

AWS is gearing up for re:Invent, its annual cloud computing conference where announcements this year are expected to focus on its end-to-end data strategy and delivering new industry-specific services.

It will be the second re:Invent with CEO Adam Selipsky as leader of the industry’s largest cloud provider after his return last year to AWS from data visualization company Tableau Software.

Keep ReadingShow less
Donna Goodison

Donna Goodison (@dgoodison) is Protocol's senior reporter focusing on enterprise infrastructure technology, from the 'Big 3' cloud computing providers to data centers. She previously covered the public cloud at CRN after 15 years as a business reporter for the Boston Herald. Based in Massachusetts, she also has worked as a Boston Globe freelancer, business reporter at the Boston Business Journal and real estate reporter at Banker & Tradesman after toiling at weekly newspapers.

Image: Protocol

We launched Protocol in February 2020 to cover the evolving power center of tech. It is with deep sadness that just under three years later, we are winding down the publication.

As of today, we will not publish any more stories. All of our newsletters, apart from our flagship, Source Code, will no longer be sent. Source Code will be published and sent for the next few weeks, but it will also close down in December.

Keep ReadingShow less
Bennett Richardson

Bennett Richardson ( @bennettrich) is the president of Protocol. Prior to joining Protocol in 2019, Bennett was executive director of global strategic partnerships at POLITICO, where he led strategic growth efforts including POLITICO's European expansion in Brussels and POLITICO's creative agency POLITICO Focus during his six years with the company. Prior to POLITICO, Bennett was co-founder and CMO of Hinge, the mobile dating company recently acquired by Match Group. Bennett began his career in digital and social brand marketing working with major brands across tech, energy, and health care at leading marketing and communications agencies including Edelman and GMMB. Bennett is originally from Portland, Maine, and received his bachelor's degree from Colgate University.


Why large enterprises struggle to find suitable platforms for MLops

As companies expand their use of AI beyond running just a few machine learning models, and as larger enterprises go from deploying hundreds of models to thousands and even millions of models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

As companies expand their use of AI beyond running just a few machine learning models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

Photo: artpartner-images via Getty Images

On any given day, Lily AI runs hundreds of machine learning models using computer vision and natural language processing that are customized for its retail and ecommerce clients to make website product recommendations, forecast demand, and plan merchandising. But this spring when the company was in the market for a machine learning operations platform to manage its expanding model roster, it wasn’t easy to find a suitable off-the-shelf system that could handle such a large number of models in deployment while also meeting other criteria.

Some MLops platforms are not well-suited for maintaining even more than 10 machine learning models when it comes to keeping track of data, navigating their user interfaces, or reporting capabilities, Matthew Nokleby, machine learning manager for Lily AI’s product intelligence team, told Protocol earlier this year. “The duct tape starts to show,” he said.

Keep ReadingShow less
Kate Kaye

Kate Kaye is an award-winning multimedia reporter digging deep and telling print, digital and audio stories. She covers AI and data for Protocol. Her reporting on AI and tech ethics issues has been published in OneZero, Fast Company, MIT Technology Review, CityLab, Ad Age and Digiday and heard on NPR. Kate is the creator of RedTailMedia.org and is the author of "Campaign '08: A Turning Point for Digital Media," a book about how the 2008 presidential campaigns used digital media and data.

Latest Stories